Partner Default Threatens Melbana’s Cuban Drilling Timeline and Cash Flow

• Amistad-11 drilling in Cuba deferred following Sonangol’s non-payment
• Amistad-2 well shows productive reservoir but no oil recovered, indicating compartmentalisation
• Prospective gas and oil resources in Australia’s AC/P70 permit increase by 3.7% and 81%
• Low-cost 2D seismic data acquired in Cuba to support future drilling
• Company holds $4.38 million cash with ongoing farm-out efforts for AC/P70

Cuba Operations – Promise and Challenges

Melbana Energy’s activities in Cuba’s Block 9 PSC during the December quarter were marked by both technical progress and operational hurdles. The company shut in the Alameda-2 well to prepare for drilling the Amistad-11 twin well, aiming to overcome formation damage that had impaired Alameda-2’s production. However, the drilling of Amistad-11 was deferred after joint venture partner Sonangol failed to meet payment obligations, prompting Melbana to issue a Notice of Default under their agreement. This development introduces uncertainty around the timing of further drilling and production ramp-up in Cuba.

Meanwhile, the Amistad-2 well was drilled deeper than initially planned, reaching 2,000 metres measured depth. Logging and testing revealed a highly porous and oil-saturated reservoir, yet no oil was recovered during flow tests, which instead produced water at rates up to 1,220 barrels per day. Pressure data suggest the Amistad-2 reservoir is compartmentalised and not in communication with Alameda-2, complicating the reservoir’s commercial potential and requiring further analysis.

Seismic Advances and Future Planning

In a cost-effective move, Melbana acquired 18 kilometres of 2D seismic data using a hydraulic weight-drop system to better define shallow drilling hazards and well locations. The quality of this data has encouraged plans for a small-scale 3D seismic survey along the Alameda-2 anticline trend, which could refine future drilling targets and development strategies in Block 9.

Australian Permit AC/P70 – Resource Growth and Commercial Prospects

On the Australian front, Melbana reported an encouraging increase in prospective resources within its 100% owned AC/P70 permit offshore northwestern Australia. Prospective gas resources rose by 3.7% to 2,857 billion cubic feet, while prospective oil resources surged 81% to 78 million barrels. This uplift reflects advanced geophysical studies and the maturation of the Hadrosaurus lead to prospect status, highlighting the permit’s growing commercial appeal.

The permit contains several undeveloped fields, including the Swan gas field and the Vesta oil and gas field, both with historical discoveries but no development to date. The proximity to existing infrastructure offers a clear pathway to commercialisation, and Melbana is actively seeking partners to farm out part of its interest to fund upcoming exploration, including an exploration well.

Financial Position and Corporate Activity

Melbana ended the quarter with $4.38 million in cash, despite net cash outflows from operating and investing activities. The company lodged a prospectus for an option offer linked to a recent placement and reported payments of $138,000 to related parties, mainly directors’ fees. Financing facilities remain available, providing a buffer as the company navigates operational challenges and pursues its exploration agenda.

Notably, the company reported no lost time incidents during the quarter, underscoring its commitment to health and safety amid active field operations.

Bottom Line?

Melbana’s next moves hinge on resolving partner payment issues in Cuba and progressing farm-out talks in Australia, with both critical to unlocking value.

Questions in the middle?

• Will Sonangol cure the default and resume funding for Amistad-11 drilling?
• What are the implications of reservoir compartmentalisation at Amistad-2 for Block 9’s development?
• How soon can Melbana secure a partner for AC/P70 to advance exploration drilling?